Non-Compete Clauses in India: What Employers Can and Cannot Enforce

Many Indian employment contracts still include a clause stopping the employee from joining a competitor for a year or two after leaving. Most of those clauses cannot be enforced. Knowing why, and what works instead, saves employers from relying on protection they do not have.

The rule: section 27

Section 27 of the Indian Contract Act, 1872 says that every agreement by which anyone is restrained from exercising a lawful profession, trade or business is void to that extent. Unlike English law, it does not ask whether the restraint is reasonable. The only statutory exception is for the seller of the goodwill of a business, who may agree not to carry on a similar business within specified local limits, so far as the limits are reasonable.

During employment: generally enforceable

A promise not to work for anyone else while employed is not a restraint of trade in the section 27 sense. The Supreme Court upheld such a negative covenant in Niranjan Shankar Golikari v. Century Spinning (1967), and courts routinely enforce exclusivity during employment, including during a notice period.

After employment: void

A restraint that operates after the employment ends is a different matter. In Superintendence Company of India v. Krishan Murgai (1980), the Supreme Court held a post-employment restraint void under section 27, and in Percept D’Mark v. Zaheer Khan (2006) it confirmed that a negative covenant operating after the contract ends is void, whether or not it is reasonable. Courts will not rewrite such a clause into a narrower one that might have been acceptable.

What protects a business instead

• Confidentiality. Obligations not to use or disclose confidential information are enforceable during and after employment, and courts grant injunctions to restrain misuse. This is the real protection for client lists, pricing, source code and know-how.
• IP assignment. Copyright created in the course of employment belongs to the employer by law; inventions should be assigned expressly in the contract.
• Garden leave. Because the employee is still employed and paid during the notice period, keeping them away from work and clients during that period is generally enforceable, within reason.
• Non-solicitation. Courts are more receptive to narrow clauses that stop a departing employee from using confidential information to solicit the employer’s clients or staff than to broad bans on dealing with former clients, which they have treated as restraints of trade. Draft narrowly and tie the clause to confidential information.
• Return of property and exit certification. Requiring departing employees to return devices and documents, and to confirm in writing that they have kept no copies, creates evidence if a dispute follows.

Sellers, founders and investors

A non-compete given by someone selling a business, or their shares in it, along with its goodwill is treated differently: it falls within the statutory exception and courts enforce reasonable restraints of this kind. Founders who are also employees should have the two roles, and the two sets of obligations, documented separately.

Drafting checklist

1. Exclusivity during employment, including the notice period.
2. A notice period of a length the business actually needs, with a garden leave option.
3. Detailed confidentiality obligations that survive termination.
4. Assignment of inventions and work product.
5. Narrow non-solicitation tied to confidential information.
6. Return of property and an exit acknowledgement.

Our employment practice drafts and reviews employment contracts, and our trade secrets practice acts when confidential information is misused.

This article is for general information and states the law as at 12 October 2026. It is not legal advice. For advice on your situation, contact the firm. Published by BRB Legal.